In most cases, for higher-rate taxpayers, buying properties through a limited company does make sense.
it offers full tax relief on mortgage interest, access to lower rates of tax and flexibility.
it also puts your property business on a firmly professional footing, which can be helpful when it comes to persuading investors and lenders.
but every individual’s case is different and its always worth taking advice – especially as the UK government keeps making changes that mean the decision gets a little harder each year.
But, being a limited company director has very good benefits when it comes to renting properties:
- Tax Benefits
- Income withdrawal on a flexible basis
- Mortgage relief
- Tax Planning
- Inheritance tax planning
- Stamp Duty
- Limited liability
- Small self-administered scheme (SSAS) pensions
Drawbacks, when renting a property through a limited company:
- The primary disadvantage you may have is finding a suitable lender. The majority of buy-to-let lenders will not lend to limited companies, and if they do, they will frequently need personal guarantees from the company’s directors. Additionally, you may discover that such mortgages have higher interest rates.
- Unless you incorporated your company prior o purchasing your property, you need to transfer or sell it to your new company. This would trigger capital gains tax, given the value of your property is likely to have increased since you originally purchased it. Stamp duty would also be charged on a property repurchase.
- Finally, you would need to pay yourself a salary or divide In order to access your rental income. These payments are subject to income tax, and rental profits taken as dividends are not considered a business expense.
Why set up a limited company?
A limited company also gives you a considerable amount of flexibility in how you can extract profit from your property business. A blend of salary, dividends and directors` loan repayment is most common these days, to retain access to the state pension and other benefits while keeping personal income tax to a minimum.
In property, as in every other sector, the limited personal liability that incorporation brings has its advantages. As a director, if the company gets into trouble, your personal assets, such as the family home, won’t be at risk as it will be risky if you’re a sole trader.
Non-residents and UK limited companies
if you are based overseas and looking to invest in UK property’s, the decision requires even more thought.
A limited company won’t mitigate the2% SDLT surcharge for non-residents, unfortunately. This comes into effect from 1 April 2021 and is designed to tax foreign ownership of investment in UK property more so than in the past.
You might also find it to be harder to get a competitive mortgage from a UK lender.